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##### company to publish a guide to eating establishments

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**Question**

A group of five students has decided to form a company to publish a guide to eating establishments located in the vicinity of all major college and university campuses. In planning for an initial publication of 6000 copies, they estimate the cost of producing the book as follows.;Paper $12,000;Research 2000;Graphics 5000;Reproduction Services 8000;Miscellaneous 5000;Personal Computer 2000;Desktop Publishing Software 500;Overhead 5500;Binding 3000;Shipping 2000;One of the students asked the campus bookstore manager to provide her with historical sales and price data for similar books.;She estimated the demand for books to be;Q=18500 - 1000P;where Q is number of books sold per year and P is the retail price of the books.;Using the data do the following;A. construct a numerical table for the retail demand curve and plot the numbers on a graph. Calculate the elasticity of demand for the interval between $12.50 and $8.00.;B. do you think the students should follow the bookstore manager's advice and price their book at $8.75? If you do not agree with this price, what would be the optimal price of the book? Explain.;C. Assuming the students decide to charge the optimal price, do you think they should proceed with this venture? Explain.;D. Assuming the student's demand equation is accurate, offer some possible reason why the bookstore manager would want to sell the book at the lower price of $8.75.;E. Explain the impact on the optimal price of designating the "miscellaneous" cost item as fixed versus variable. (Hint: Do the pricing analysis assuming miscellaneous is a fixed cost and compare it with an analysis that assumes it is a variable cost.;F. Under what circumstances do you think the average variable cost would increase? Do you think the law of diminishing returns would play a role in increasing AVC? Explain.;G. Under what circumstances do you think the AVC would decrease? Explain.

Paper#21568 | Written in 18-Jul-2015

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